A Good Thing: Agribusiness Future Isn't Golden

By Brad Zigler

Real-time Monetary Inflation (per annum): 7.7%

"Good as gold" is a phrase that's meant to assure the listener of an item's intrinsic worth. Lately, you wouldn't have used that idiom to describe agribusiness. No, you'd have to say that agribusiness is actually better than gold.

Agribusiness, represented by the Market Vectors Agribusiness ETF (NYSE: MOO), has been outperforming the bullion-holding SPDR Gold Shares Trust (NYSE: GLD) since late February.

The Market Vectors portfolio tracks 44 global firms making up the DAXglobal Agribusiness Index. Index constituents include companies producing agricultural chemicals and farm equipment, livestock operations and biofuels manufacturers. The index roster is populated with large-capitalization issues such as Potash Corp. of Saskatchewan (NYSE: POT), Archer Daniels Midland Co. (NYSE: ADM) and Komatsu Ltd. (KMTUY.PK) as well as smaller outfits including Maple Leaf Foods, Inc. (Pink Sheets: MLFNF) and The Andersons, Inc. (Nasdaq: ANDE).

Year-to-date, the agribusiness ETF has gained 10.3% compared with a barely perceptible 0.9% inching up in the gold trust's price.

Gold (GLD) Losing Ground To Agribusiness (MOO)

The GLD/MOO ratio, now at 2.84, seems headed to test a previous low at 2.72 (a lower ratio value represents a cheapening of the gold trust relative to the agribusiness portfolio).

The ag fund certainly has momentum now, having reached new highs Thursday versus commodity futures proxied by the GreenHaven Continuous Commodity Index ETF (NYSE: GCC) and against broad-based commodity producers tracked by the Market Vectors RVE Hard Assets Producers ETF (NYSE: HAP).

Agribusiness Breaks To The Upside Against Commodities

The GLD/MOO ratio' s move to the downside has as much to do with the market's cooling ardor for bullion as it does with a growing appetite for stocks. Equities are rebounding. COMEX spot gold lost 1.7% this week, but the 30-stock Dow Jones Industrial Average gained 2.7%.

Gold's luster is being oxidized by the evaporation of the fear that drove capital to bullion.

Credit spreads are narrowing, reflecting a resurgent enthusiasm for risk. The three-month TED spread - the yield differential between risk-free Treasury bills and commercial loans priced at the London Interbank Offered Rate (LIBOR) - was squeezed to 89 basis points (0.89%) Thursday, its lowest level since June 2008.

With GLD/MOO spoiling to score new lows, ag investors shouldn't hope for a golden future.

Comments

[DONE_SONZ:]

Being that currency issues are the main culprit that got us here again in the first place,I wouldnt be quick to move out of gold, if ever.Volume in the stocks are low on the flat to down days as far as I can see too.If people think MOO will replace oil,they are wasting their money.Thats a whole other topic though.

May 03 06:42 AM

[Delojozafado:]

For what ever it is worth just lately Dennis Gartman has turned neutral to bearish on gold, calling it grossly over valued against O&G (IRR) & (IGE) and the Grains (DAG) & (MOO). The ADM is mentioned in the author's remarks. Now that one is very interesting. ADM reports 3rd quarter numbers early in this coming week. Reporting on the heels of DOW's just reporting excellent results last week as a result of the AGs in their business model being strongly accretive. The last time ADM, BG and POT reported they had less than great numbers to publish. What is so particularly interesting about ADM ???? is the huge out sized move the ADM-PA took on Friday, up 5.7% in the one day. Most of that move came in the last 20 minutes of trading. Now we all know it is an even playing field out there and no smoke plumes ever arise from these companies before they report, leaking any inside info. But even so a rather large move in those preferred shares none the less. So someone is buying in a ramp up while others are moving aside to surrender shares. 49 cents would not be too bad but 54 or 55 cents would move ADM, me thinks.

May 03 09:50 AM

[Alan Young:]

I don't see the point of comparing these two.
If you want to judge the usefulness of a gold investment, talk about that.
If you want to talk about the future of agriculture, talk about that.

May 03 04:34 PM

[Brad Zigler:]

What your seeing what is usually referred to as "sector rotation." Capital is now embracing risk rather than averting it. And THAT's an important economic bellwether.

May 03 05:48 PM

[LKofScotland:]

"sector rotation" in commodities? that's a new one. inflation is awful for gold and all precious metals. no different from every other market timer out there. if food is moving its because governments around the world are mismanaging their finances and thereby are driving up food costs. we're the world's largest food processor, distributor AND retailer. there is no wage pressure in the USA. any dips in the winners (Wal Mart, Mcdonalds, Pepsi) strikes me as a buy here, especially ones commensurate with an overall market drop should the predicted may collapse materialize.

May 03 10:58 PM

[Brad Zigler:]

Sector rotation in commodities isn't novel. Gold's a safe haven play not necessarily associated with price inflation. Rotating out of gold and into nonfinancial commodities is indicative of a changing perspective on risk.

May 04 01:14 AM

[learnmoney:]

What a load of "Tosh"............how can you compare two very different ETFs?
One feeds the other does not if you get my drift.

May 04 05:40 AM

[Brad Zigler:]

It's the very fact that they ARE different that makes the relationship significant.

Ask yourself this: why would investors vote with their feet and dollars bymoving from gold to nonfinancial commodities?


On May 04 05:40 AM Libourne wrote:

> What a load of "Tosh"............how can you compare two very different
> ETFs?
> One feeds the other does not if you get my drift.

May 04 10:06 AM

[Freya:]

I hope GLD manages to hold $85 and rally thereafter.

I am not ready to sell my Gold shares.

May 03 10:23 AM